Banker urges new controls on ERM margins
CREATING a single European currency is "nonsense" when there are freely floating exchange rates in the EU in all but name, according to Mr Philip Halpin, head of treasury and international at National Irish Bank.
Speaking at the opening of the National Irish Bank treasury operation at the IFSC last night, Mr Halpin said the Irish authorities needed to target a rate for the 20pound above 2.3570 deutschmarks to improve its performance against the German currency. It traded yesterday just over DM2.3050.
The target rate called for by Mr Halpin represents the bottom of the old "narrow band" against the D mark. This band was abandoned in mid 1993 during the currency crisis, in favour of a much wider band allowing 15 per cent variation each side of a central point.
Mr Halpin said that the 15 per cent margin of fluctuation in the EMS is "inappropriate".
The term "normal fluctuation margins" in the Maastricht Treaty also needs to be clarified, Mr Halpin said.
Under the treaty, currencies must operate within "normal fluctuation margins" for at least two years before the decision is taken on which currencies will participate in monetary union. When the Treaty was framed this appeared to relate to the narrow 2.25 per cent band, but it is not now clear what frame of reference will be used.
According to Mr Halpin only the Austrian schilling, Dutch guilder and Belgian franc have displayed an ability to live with the German currency. The French franc, by contrast, has performed poorly.
Mr Halpin said that the clear difficulty for the Government in aiming for a higher deutschmark value was what it would mean for the exchange rate against sterling.
"Should sterling weaken considerably against the D mark and the pound maintain a level of DM2.3570, this could push us above 105p," he said.
"On a European level, the time has come for action on the exchange rate front and the re establishment of more meaningful bands within the ERM."
He admitted this could provide targets for currency speculation but warned the "longer this issue is unresolved, the greater the risk attached to a delay in the EMU timetable".